The ethics of hoarding

In the Philippines, they're threatening life sentences for traders hoarding rice. In the United States, grocers need to put limits on rice purchases just to keep their shelves stocked. Philippine traders are now afraid to fill their warehouses, for fear of being called a hoarder. Even ordinary US shoppers are worrying that buying a big bag of rice might make them a hoarder. In this climate, it's worth thinking about what hoarding actually is.

Let me start by saying what it isn't. Stocking your pantry with goods that you're going to use isn't hoarding.

Hoarding is buying goods and storing them in the hope of selling them at a higher price.

Of course, there's an aspect to that in practically every business. Ordinary business behavior is different from hoarding mainly in that most businesses add value--the baker transforms the flour into bread, the butcher cuts up a carcass into steaks and chops. Just repackaging can add value--the wholesaler buys rice by the railcar and sells it in 50 pound sacks to the grocer who then sells it to shoppers by the pound.

Ordinary businesses also have a steady flow to their buying and selling. The gas station may have thousands of gallons of gasoline in its underground tanks, but that gasoline is for sale every day, not held off the market waiting for the price to go up.

A hoarder, though, doesn't add value by transforming the product in some useful way, nor does he make his money on the markup from wholesale to retail. He just buys stuff and holds on to it, hoping to sell after the price goes up.

Merely doing that is ethically neutral--often, in fact, beneficial. A clever hoarder will buy when prices are low (which is a source of price support for suppliers who would otherwise be suffering) and then sell when prices are high (providing supplies when there would otherwise be a shortage). If he makes a profit, it's a legitimate return on the capital that was tied up during a period of low prices. Buying low and selling high is not just a way to make money, it also helps stabilize the market, protecting both suppliers and consumers.

Hoarding becomes ethically objectionable when the hoarder waits until prices are already high, and then buys goods in the hope that prices will go even higher. That's not stabilizing. That can turn tight supplies into shortages and send prices up to where basic staples are beyond the means of all but the wealthy.

Note that this sort of hoarding is also not a very good way to make money. If supply and demand are already clearing, at whatever price, there's no particular reason to suppose that prices will go even higher. In fact, over the medium term--once suppliers have a chance to grow more or make more, and once consumers have a chance to adjust their habits to use less, you can expect prices to go back down. Hoarders buying at that point may drive the price up in a speculative frenzy, but once they start selling, the price will go right back down again, meaning that most of them won't make any money. They will, though, make the price gyrate. It's those price gyrations, together with the shortages caused by taking the product off the market, that make hoarding objectionable.

From an ethical point of view, there's no reason for ordinary consumers to worry that they might be doing something bad by stocking up. In fact, the stockpiles of ordinary consumers are a positive, stabilizing force when there are supply and price shocks, because the consumer with a stockpile will naturally limit purchases when there's a shortage. It's only the consumers with bare shelves who are buying when the price has just shot up.

Hoarding is a bad word, though--something that you wouldn't want to be accused of, even if you could make a reasoned argument about the stabilizing effects of stockpiles. In the US, we're not at the point of ugly mobs forming when someone carries a couple extra bags of rice out of the grocery store, but Americans are as good at forming ugly mobs as people anywhere.

Ethics aside, as a simple, practical matter, you don't want to be trying to build your stockpile after shortages are already in the news. Once that happens, cut back on use to make your current supplies last. Switch to stockpiling stuff that's still cheap--there's always something, unless times are very bad indeed. Especially during a time of shortages and soaring prices, there's no better investment.

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We do appreciate your perspective on the rice shortage. We're just wondering why our country is a poster child for the problem. It's just amazing to see even people in Alaska cite the Philippines when talking about their own rice "problem."

Phillip:
You must have seen my thread on the wisebread forums titled "Am I Evil or Frugal?" I have come to realize that my buying an extra bag of rice, was not an evil act, though it may still be considered hoarding.

But with food inflation a fact, it just makes economic sense to buy extra now, to save money. There are solutions to the world food crisis. End the war in Iraq. Stop Ethanol. Eat less meat.

How is ending the war in Iraq going to solve the world food crisis? I know because when we leave Iraq the country will fall into chaos,and destablize the whole region, and then oil prices will skyrocket, and then we won't have money to buy groceries because we will be broke from filling up our gas tank to get to work. Then supply and demand will kick in and because we won't be eating as much the world food crisis will be over. Sounds like a good plan.
We really need energy independence.

Yeah, I did see your thread in the forum, and responded there as well. But then I got to thinking about it, and decided that the topic was worth a post.

See, it's a bigger issue than just rice. There are always shortages of something.

Personally, I often stock up on stuff if I hear news that suggests a possible shortage. I got my mom to stock up on peanut butter one year, after news of a drought affecting the peanut harvest. I got my wife to stock up on coffee after a freeze in Brazil. Both times, my suggestion was to go ahead and buy enough for six months or a year. Both times, we got our purchases made before the price went up. (Oddly, prices at the grocery store don't usually go up very quickly after an event like that--often it takes weeks.)

This case is a bit different, because there isn't really much of a shortage of rice. Rather, there's a supply disruption, because many rice-producing countries have blocked the export of rice. They're doing that because the price of rice has gone up just like the price of wheat, corn, and other foodstuffs, and they're trying to keep the high world price from pushing domestic prices so high that their citizens can't afford to eat.

When you think about it, export restrictions amount to hoarding on a national scale. They're causing real problems. Someone buying an extra bag of rice to eat? That's no big deal.

I have an obligation to my own family first. As a family who doesn't eat wheat/barley/rye due to Celiac, we eat a lot of rice.

Most people I know here in the US probably don't eat rice even once a week, much less every day like many people from Asia or my own family, yet they rushed right out to buy it up.

But I don't blame them and don't think it should be illegal to hoard rice/flour/whatever.

Everyone has their families to feed just as I have mine. If a 25 pound bag of rice makes them feel better, and they can afford it, they should go for it.

Food has equaled security for much of human history. You can discourage it and say "tsk tsk", but it is not wrong to worry about your own family and circumstances first.

It is wrong when one's own plight is one's only concern. It is also wrong to be wasteful. Aside from those issues, it is not wrong to save food "for a rainy day", regardless of what that rainy day entails.

I was looking for flour, but while I was there I also wanted to pick up more brown rice, since I was running low. The normally fully stocked shelves were 80% bare, and where there would normally be 2 pallets of stock waiting to be put on the shelf, there were 2-3 small, lonely boxes waiting.

Fortunately, I was there for healthy, whole grain brown rice. Sadly but predictably, there was no shortage of that.

I don't know if Trent is talking about Mormons, but they're one faith that believes in storing food--every household should a stockpile of basic necessities. As best I can recall (I lived in Salt Lake City for a couple of years), the scriptural basis is simply that households should be self-reliant.

It makes good sense. Something as simple as a bad blizzard can make it hard for both you and the delivery trucks to get to the grocery store. If most households have a bit of a cushion in the form of some food on hand, then the whole community is more stable.

Along the same lines, Mormon men are supposed to have a small business besides their regular job. If they're between jobs for a while, they can ramp up the small business and earn a little extra money. Once again, it adds stability to the household and the community, because minor economic glitches don't turn into disasters.

Whether it's an article of faith or not, having some basic necessities on hand and some diversity of income are both just good sense.

The companies who are currently driving up food prices must love it when the media and popular opinion points the finger at some prudent citizens trying to ensure their family's food security. Individual hoarders have nothing on the big guys. This is a serious issue and a seriously misrepresented one, I find. Two good articles I've seen on this issue are:

Is the NEW moral of the story that the Ant was immoral and unethical for prepairing for the coming winter?

(I must admit that I did have a smug feeling as I pulled the last 4 ten pound bags of rice off the shelf of my local WalMart, leaving the shelf bare...but that shows that I almost waited too late to prepare)

Speculators are an interesting variation. They cause the same price gyrations, by bidding up prices, but they generally don't cause shortages, because almost all their activity takes place in the futures markets and they hardly ever take physical delivery--so there's just as much supply as before.

Hoarders, by physically stockpiling goods, can bring about actual shortages.

Of course, to a poor person, goods that are unaffordable don't seem like much of an improvement over goods that are entirely unavailable. They are, though. There are plenty of things you can do to stretch expensive supplies, but none of those tricks do much good when the shelves are bare.

It interesting that many blame speculators for shortages and high prices. They obviously don't understand how markets work. You state speculators bid up prices. That they do - some of them - but speculators operate on both sides of the market. As a speculator, you are free to be long or short on whatever market you choose.

I guarantee you that at this moment many speculators are betting on the price of oil to dump. They could be right, or they could be wrong and get seriously burned.

Ummm, I don't think you know too much about hoarding. It is a devastating mental condition that has nothing to do with stockpiling to make money! visit childrenofhoarders.com or you can link to my blog to learn a little more about it.

There are several different behaviors that are all sometimes called hoarding. One, that you're referring to, is related to certain mental disorders. I only have second-hand experience to go by, but it can obviously be a crippling problem producing squalor and misery.

The word "hoarding," though, dates back to Old English, and describes the perfectly rational behavior of putting things by against future need.

Of course, there's a perennial tension between people who put things by and people who don't. (See the story of the Ant and the Grasshopper.) Sometimes, especially when the future need wasn't so clear, the people who didn't put things by rise up against the people who did. One tactic in that struggle is to turn "hoarding" into a bad word--something done by speculators and profiteers. It was to that struggle that my comments were aimed, not the (also important) struggle to help people suffering from mental illness.